When Meg Nakamura and her two co-founders were accepted to Y Combinator, they set out to rethink consumer financial services. It felt right to start with the familiar, a debit card, but with an infrastructure that was a bit more flexible than legacy systems. That’s where bitcoin came in. More recently, the company has been focused on leveraging the infrastructure and relationships they’ve built in launching and maintaining the “Shift card” to build an API platform for businesses with card programs.
Plaid’s Chelsea Allison caught up with Meg to chat about the early days at Shift and where things are headed. This conversation has been edited for clarity and brevity.
CA: Talk me through the motivation to build Shift in the first place.
MN: Coming from consulting—and, I don’t mean to knock consulting, by any means—it’s exciting to build tangible products that make financial services better for actual consumers. With Shift, we saw an opportunity to rethink the consumer experience around card programs. Historically, while card payments continue to be generally reliable, the underlying technology is inflexible and unable to easily support the newer, mobile-led, real time and on-demand nature of quickly evolving fintech use cases.
As simple as it seems, in 2012/2013 we saw companies like Coinbase and Ripple as the next generation of consumer financial services. Yet, unlike traditional banks, these cutting edge companies didn’t have a debit card product for their customers. Existing card payments companies could not support a true debit card product. Such legacy companies weren’t about to carve out their own budget and resources to integrate with these startups. And, even if these startups were to foot the bill, the integration would be very slow and it would result in an inferior, prepaid card product. Prepaid solutions continue to suffer from unnecessary consumer friction and poor acceptance issues.
Given this environment, we not only believed a new card payments company could seamlessly support evolving fintech use cases, but we also saw an alternative strategy to the “popular” hardware-led, aggregation solutions coming to market. Rather than building hardware to mimic various accounts, we saw an opportunity to build software that aggregates accounts.
CA: What was the biggest surprise? The biggest challenge?
MN: The biggest surprise is that legacy payments systems really are magnitudes harder to work with than you think. Going in, we knew this would be an execution challenge. But, we still underestimated how hard it would be.
I’m often asked why other companies who want to issue cards wouldn’t build this on their own. They certainly can (try). But, make no mistake, it requires dedicated focus and it takes years to get right. There’s a reason why Synchrony Bank and others exist.
The biggest challenge is that we work really hard to obfuscate the nasty complexity of the legacy issues as well as the surprising number of various players involved in launching a card program. We end up having a lot of balls up in the air, and we can’t allow any to drop.
CA: You became known for your bitcoin linked debit cards, but why is the API platform approach so important in the financial services space?
MN: Because every card program is unique. We’re focused on building generic tools that each company can work with and configure to their specific use case. If we didn’t take this approach, I fear that we would build custom solutions for one-off partners.
We strongly believe that whitelabeling our services and positioning ourselves under-the-hood is mutually aligned with our B2B customers. We want to empower our customers to maintain their frontline, customer facing interactions… It’s our goal to provide the most effective tools to run the best card program.
In the short run, we are also focused on working with fintech companies that need modern, developer-friendly APIs that support their use cases. We’re experts in card payments and transaction processing. But, our customers are experts in delivering the best products and services to their end users. We think of our APIs as the tools that will enable the next generation of card programs.
CA: Can you go into what your payments infrastructure actually looks like?
MN: At a high level, we provide solutions for issuing cards, transaction processing, and settlement and reconciliation. By working with the global card networks, we’re lucky enough to see transactions from all over the world. Our cardholders can spend their money at over 38 million merchants worldwide.
CA: You have a fair amount of international experience as well. What makes the U.S. market unique?
MN: The U.S. market is simply the largest in the world. With respect to card payments, it’s definitely not the most progressive or fastest-growing, but it’s hard to say it’s not—at least—very important. The U.S. card market is unique in that it’s mature. We don’t have to teach an old dog new tricks—everyone here knows how cards work.
For what it’s worth, I personally never carry cash. I think that’s pretty unique compared to other parts of the world where card acceptance is lower.
CA: From your background at Promontory, I know you’re really familiar with risk and compliance reporting and anti-money laundering programs. Did you see opportunities there that helped lead to the Shift card? Were there any unexpected challenges on that front, especially in starting out with cryptocurrency?
MN: We definitely stacked the cards against ourselves by starting with cryptocurrency. Especially three years ago, banks were extremely reluctant to work with the new technology. That said, our background at Promontory certainly helped us with the banks because we could understand their perspective. Our approach helped us establish a close, positive working relationship with our bank.
CA: Shift works with established financial services players on one side (like Visa) and newer entrants on the other. Can you talk about some advancements at the intersection of these two worlds that stand out?
MN: In terms of new advancements, I think we’re starting to see great leaps in identity solutions and specifically portable identity solutions. These self-sovereign, trusted, private, secure solutions will be exciting to work with because we can get to a world where consumers will never have to “sign up” for a product or service again. Established financial services players like Visa may continue to dominate their niche and their value-add (of merchant acceptance), but I’m excited about getting to innovate on the edges to deliver the most cutting edge, consumer-friendly products.